Undertrained advisers operating in expat hotspots such as Spain, the Middle East and Asia, are jeopardising investors’ cash by recommending high risk funds while also failing to properly diversify clients’ portfolios, it is said.
David Norton, head of investments at financial advisory firm AES International said: “All too often we come across new clients who have received poor advice in the past and have had their money put into a toxic mix of high risk funds and poorly diversified portfolios. Structured products and unregulated fund structures are particularly common.
“Some of the specific investments might not have been bad if they had been part of a well-diversified, balanced portfolio, but when they make up a substantial portion of that portfolio and begin to lose money, they can become extremely costly.”
There are scores of examples of funds which have been widely sold in expat markets and have gone seriously wrong. Often the advisers selling these funds have been paid large amounts of commission to do so, say AES International.
It is also rarely explained to investors that it is much harder to recoup losses once investments begin to fall.
For example, if a portfolio falls by 10% it would need a gain of 11.1% to recover this loss. If a portfolio falls by 40%, it would need to increase by 66.7% to recover the loss.
If it were to fall by 70%, an investor would need a 233.3% gain in order to break even.